Goldman Sachs Suspends Purchase of 20% of Prisma

Markstone PKN funds lose 40 percent of assets since they were purchased from Bank Hapoalim in Oct. 2005.

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Goldman Sachs was set to pay up to $100 million for 20 to 25 percent of Prisma, the new investment firm created by Markstone, but TheMarker has learned that the deal has been suspended. Prisma focuses on the PKN mutual funds that were sold by Bank Hapoalim to Markstone.

Goldman Sachs, which made the decision a month ago, may have been dismayed by the evaporation of assets from Prisma. Since Markstone bought PKN Plus in October 2005 for NIS 954 million, the value of the funds' assets have dropped by 40 percent, from NIS 20.5 billion to NIS 12 billion, after investors withdrew their funds. Markstone eventually was granted a NIS 100 million reduction in the original purchase price due to the drop in assets.

Headed by CEO Dov Kotler, Prisma took over management of PKN at the beginning of April, but that has not been able to stop the bleeding of its assets. A huge loss of assets in such a short period of time is unknown in U.S. fund management.

While market sources said that the security and political situation may have contributed to Goldman Sachs' decision, it was not the main factor in the investment bank?s pullout from the deal.

Israel's security situation has been unstable for years, which never stopped the investment firm from buying parts of Israeli companies in the past. Most recently, Goldman Sachs bought a 5 percent stake in Cellcom at a company value of $2.1 billion.

More likely, however, is a question of price. Goldman Sachs was supposed to buy the stake in Prisma according to a company value of about NIS 2 billion. If a deal eventually is closed, the price is likely to be lower due to the steep drop in assets.

According to the original agreement, Goldman was to buy into Prisma at a company value of NIS 2 billion, the same price as that paid for the funds. based on this valuation, the drop in assets should reduce Prisma?s value by about NIS 300 million.

Markstone is also supposed to buy provident funds from both Bank Hapoalim and Bank Leumi, with assets of NIS 30 billion, and the deals are expected to close in the next few months.

"The delay has nothing to do with economic parameters," Markstone said, adding that a decision regarding the deal has yet to be made. It blamed the delay on the fact that deals to buy provident funds have yet to be finalized. Markstone's managers, Amir Kess and Ron Lubash, told TheMarker in an interview that they intend on judging the success of the investment only over a five-year period.

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